1. Field of the Invention
The present invention pertains to techniques for tracking an index or other portfolio and is particularly applicable to automated techniques for facilitating the management of an index fund or similar stock portfolio where the investment strategy is to emulate a widely followed index.
2. Description of the Related Art
Many conventional mutual fund companies have at least one mutual fund that attempts to track or emulate the performance of a widely followed index, such as the S&P 500. While such an investment strategy may seem straightforward on its face, there often are many practical problems in actively managing a fund (or other portfolio) so as to properly track a broad index.
For instance, mutual funds typically are open-ended funds that must contend with the individual investors purchasing and selling their interests in the fund. By maintaining a certain amount of cash on hand, the fund often may be able to accommodate such exits and entries. However, in cases where the total amount invested is increasing or decreasing in significant amounts, the fund manager often will be required to purchase additional stocks or sell some of the stocks from the portfolio in response to the corresponding inflow or outflow of cash. While the amounts of such cash often will be sufficient to necessitate the purchasing or selling assets, such amounts rarely will be significant enough to warrant a proportionate purchase or sale of all of the stocks in the tracked index, across the board. Accordingly, the fund manager must identify a subset of the index stocks to buy or sell. Until now, no adequate conventional technique has existed for systematically identifying such an appropriate subset of stocks (or other assets).
The foregoing situation is even further exacerbated in a situation where a manager is given the task of tracking such a broad index while managing a fund that is not sufficiently large to justify maintaining proportionate holdings of all assets in the subject index. In this case, a smaller set of assets must be selected, even at the outset, to simulate the index. Often, this set of assets then must be adjusted over time to reflect changes in: the value of the fund, the composition of the index itself, and the variations in the values of the individual assets in both the fund and the index.